| 2.5. | Foreign Currency Translation and Transactions |
The functional currency of the Company is US$ and the reporting currency is Brazilian Real (“R$”) as this currency better reflects the underlying operations of the consolidated entities. The Company’s subsidiaries with operations in Brazil, Argentina and Mexico use their respective currencies as their functional currencies.
Foreign Currency Translation
The financial statements of foreign entities that use a functional currency different from the reporting currency are translated into Brazilian Real as described below:
| • | Assets and liabilities are translated into Brazilian Real at the closing rate, corresponding to the spot exchange rate at the balance sheet date; and |
| • | Income statement and cash flow items are translated into Brazilian Real using the average rate of the period unless significant variances occur. |
The resulting exchange differences are recognized directly in other comprehensive income (loss). When a foreign operation is disposed of, the cumulative amount of the exchange differences in consolidated equity relating to that operation is recorded to the consolidated statements of profit or loss.
Foreign Currency Operations
Foreign currency transactions are converted into the functional currency using the exchange rate at the transaction date. Monetary assets and liabilities denominated in foreign currencies are re-measured into functional currency using the exchange rate at the reporting date and the resulting exchange differences are recognized as financial income (expenses) in the consolidated statements of profit or loss. Non-monetary assets and liabilities denominated in foreign currencies are not re-measured at the reporting date.